Overreaction to Growth Opportunities: An Explanation of the Asset Growth Anomaly

30 Pages Posted: 19 May 2020

See all articles by Charlie X. Cai

Charlie X. Cai

University of Liverpool Management School

Peng Li

University of Leeds - Division of Accounting and Finance

Qi Zhang

Durham University

Date Written: September 2019

Abstract

The negative relation between asset growth and subsequent stock returns is known as the asset growth anomaly. We propose that overreaction to growth opportunities is the source of the asset growth anomaly. This suggests that growth firms as opposed to mature firms, and firms with longer series of asset growth should experience a stronger asset growth anomaly. Our evidence supports these predictions.

Keywords: anomaly, asset growth, growth opportunities, overreaction, US market

Suggested Citation

Cai, Charlie Xiaowu and Li, Peng and Zhang, Qi, Overreaction to Growth Opportunities: An Explanation of the Asset Growth Anomaly (September 2019). European Financial Management, Vol. 25, Issue 4, pp. 747-776, 2019, Available at SSRN: https://ssrn.com/abstract=3600264 or http://dx.doi.org/10.1111/eufm.12188

Charlie Xiaowu Cai (Contact Author)

University of Liverpool Management School ( email )

University of Liverpool
Liverpool, L69 7ZA
United Kingdom

Peng Li

University of Leeds - Division of Accounting and Finance ( email )

Leeds LS2 9JT
United Kingdom

Qi Zhang

Durham University ( email )

Old Elvet
Mill Hill Lane
Durham, Durham DH1 3HP
United Kingdom

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